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Organizational Dynamics
Volume 35, Issue 3, 2006, Pages 279-290 |
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Marketing the Image of Management: The Costs and Benefits of CEO Reputation
Annette L. Ranft, Robert Zinko, Gerald R. Ferris and M. Ronald Buckley
According to journalist Thomas Friedman, the world has been flattened. The process is irreversible, omnipresent, and marching forward! One of the byproducts of the paradigm-breaking leap forward in information technology has been a more egalitarian approach to global business opportunity. Any organization can compete, because the hardware needed to compete effectively in world markets is inexpensive and accessible to almost everyone. Our competitors are no longer only those business entities who toil in similar markets. Our competition has become any company, anywhere in the world, who possesses the widely available, relatively inexpensive technology that would enable it to effectively compete – new entrant versus giant.
One area in which high profile organizations may retain (and develop) their competitive advantage is in the area of chief executive officer (CEO) reputation. For better or for worse, we have become a nation obsessed with celebrity gossip and culture. Many organize their day around their daily fix of Oprah and spend precious time reading books detailing the private lives of public figures. Many of these books hold down high places on lists of bestsellers. This has expanded, in many cases, to an intimate knowledge of and a fervent interest in, the private lives of the CEOs of many global organizations. We now know many private details of CEOs’ lives ranging from illnesses and marital distress to managerial style and philanthropic interests. Many of the CEOs of major organizations have become household names; we know a lot about them and have come to conclusions regarding their reputation. Who could have forgotten, or failed to understand, the reputation of turnaround expert “Chainsaw” Al Dunlap? While we all have been exposed to these reputations, relatively few have looked at the emerging phenomenon of CEO reputation in so far as it may have an influence on the ability of an organization to compete in the aforementioned flattened world. How can organizations capitalize on the trend to popularize and celebrate CEOs?
This special issue of Organizational Dynamics addresses the potential interfaces of the management and marketing disciplines. In recent years, however, one area where we have begun to see cross-disciplinary scholarship is on the topics of identity and reputation, particularly in the management and marketing fields. In this article, we extend this cross-disciplinary lens to focus on the firm's chief executive officer and his or her reputation. We would suggest that CEO reputation, as an intangible asset, should be actively managed and promoted by an organization for competitive advantage in a flattened world. It must be recognized that CEO reputation may have both benefits and costs for organizations and their constituencies. Our intention is to integrate these issues and ideas from relevant research in both the management and marketing fields in an effort to develop a more informed understanding of CEO reputation and its concomitant opportunities for an organization.
Reputation in the management literature has been examined at both the individual level and corporate level. Individual or personal reputation has been referred to as a shared perception by others of a person's attributes or behavior. People are motivated to manage their impressions because they have a goal of creating and maintaining a certain identity that they find rewarding or useful. To do so, they need to behave in certain ways that are consistent with the desired identity or reputation. Also, because they are reflections back to the person from others, reputations may provide feedback to the individuals that their objectives have been obtained.
Reputations tend to have an impact on how attractive people are seen to be, and individuals are believed to have multiple reputations. Therefore, people work hard at developing and maintaining their reputations through active efforts to manage impressions others form of them. Reputations not only may be developed and sustained by impression management, they also may be deliberately manipulated. For instance, sometimes individuals try to give the impression that they hang out with prominent people, and therefore are connected to those networks, in hopes that will boost their own reputations.
Reputation often is associated with achievement, which is presented as consistent high performance or responsible behavior, and then serves to establish trust with significant others, thereby resulting in a “good reputation.” The connection of reputation and trust is an important one, and indicates that when someone has an established reputation, we tend to trust that they will behave consistently like that in the future, which can lead to a feeling of comfort and predictability.
At the organizational level, reputation has been defined as how others evaluate an organization over some period of time. The reputations of corporations are important because they can be viewed as intangible assets for the firm that can contribute to building and sustaining competitive advantage. Firms need to maintain relationships with many different constituents, and a positive reputation with these groups (e.g., suppliers, shareholders, and customers) is considered an important resource, because it may be leveraged to entice these stakeholder groups to provide necessary resources to the firm. Firms actively attempt to manage reputation through media and other public relations efforts, because of the importance of this intangible asset to the firm's competitive success.
Regardless of whether we are interested in individual reputation or corporate reputation, there are common themes that recur. First, reputation is built over time. Second, reputation can have a lasting, long-term impact on the individual or organization in which it resides. Third, reputation is often managed and manipulated through impression management techniques and strategic use of the press.
The marketing literature's perspective on reputation generally views it as an aggregation of performances, actions, or images regarding consumer knowledge about a brand, which essentially equates reputation to branding. This perspective suggests that reputation is a resource that can be used to generate value. Reputation can be viewed as being the result of a continuous process of credibility transactions, thereby enhancing trust and commitment. Organizations carefully monitor and actively manage their reputations through decisions regarding the composition of workforces – signals that organizations send to the market so that others can observe and react. Another such market signal may be sent to the market (and stakeholders) through the reputation of a newly appointed CEO. The treatment of reputation from a marketing perspective, then, is consistent with a management perspective. Reputation is built over time, can have a lasting impact, and is often proactively manipulated and managed.
A CEO is an individual at the apex of an organization whose personal reputation can have immediate and long lasting impact upon the organization. CEOs of large, powerful business organizations are public figures who often build reputations that are culturally and socially pervasive, expanding beyond the scope of reputation with shareholders, customers and employees. Many of these CEOs’ reputations saturate organizational boundaries. Further, they endure for decades such as Walt Disney Co.'s iconoclastic reputation as wholesome and family oriented. The reputation of founder Walt Disney as “Uncle Walt” has contributed to a deep brand that continues to guide the Disney Company more than 40 years after his death.
While some CEO reputations have lasting effects, the effect that a powerful CEO reputation has on a company often can be both immediate and tangible. When the Sunbeam Corporation hired “Chainsaw” Al Dunlap as its CEO, shares of Sunbeam stock rose 60 percent. Much of this shareholder reaction was clearly attributable to Dunlap's reputation as a turnaround specialist and the press coverage regarding his selection that emphasized this reputation. The stock increase was not due to any sort of increase in tangible assets (or earnings) that Dunlap would facilitate for the company, nor was it based on any sort of announcement of a specific plan of action that had been laid out to increase profitability. Instead, the stock increase was based upon the fact that Dunlap was hired to run the company. The stock increase likely was reflective of the increased expectations the financial marketplace and investment community anticipated, based on Dunlap's reputation built from past experience with corporate restructuring strategies at his previous corporate stops (e.g., Scott paper).
In recent times, we are seeing CEOs as more than just officers appointed by a board to supervise the running of a company. A CEO often is viewed as the embodiment of the company, responsible for both the successes and failures of all aspects of the organization. This new “all powerful” image is nurtured not only by the record of the CEO, but also by the public's trust; a trust that has been cultivated and perpetuated in no small part by the promotional efforts of the modern day media.
A CEO's reputation can be seen as an “intangible” asset that can be viewed as a sort of “brand” that CEOs cultivate. This cultivation is not only “pushed” by managing the reputation via political skill and impression management, but also is often “pulled” by media. As an example, Fortune magazine recently ran an article entitled “How Mark Hurd – CEO and salesman extraordinaire – is helping Hewlett-Packard reboot” (Fortune, 4/17/2006, p. 73). Hewlett-Packard promotes its new CEO as a salesman extraordinaire, and the press perpetuates and builds this reputation through feature length stories and photos of the CEO as a successful man of the people.
Because a CEO is now seen as the public “face” of the company, this is the individual frequently sought out by the press for explanations/information. The press, due to the nature of the news cycle, is required to find quick and convenient answers to decisions made by organizations. This forces even more attributions onto the CEO, because success or blame can be easily understood in a 30-second news segment if a single “in charge” individual is singled out. CEOs with strong reputations, such Herb Kelleher of Southwest Airlines Co., are frequently called upon to explain outstanding success or failure of their own firms, and often are called upon to explain the performance of an entire industry in a snippet brief enough to keep the attention of a channel-flipping public during an evening newscast.
The focal point of branding is the idea that the name (Smucker's), trademark (Bass Ale), or symbol (Kotex period) related to a product delineates a separation over other entrants in the aforementioned flattened competitive landscape. Branding does not recognize a “superior” product; rather, it embeds a favorable idea or strong and unique association in the memory of potential consumers. It would be difficult to argue that Bayer aspirin is clinically superior to generic aspirin as they are, by law, the same chemical compound. Yet Bayer is able to charge consumers significantly more, presumably because of its well-recognized reputation, brand name, and claim that a large number of physicians prefer Bayer.
Due to their high profile reputations, CEOs are able to market themselves as household names and elevate their names or identities to branded status. “Deep” brands are brands that no longer have to promote their names. They are so closely associated with the product, that they may promote the product rather than the brand name (Campbell's promotes soup, not Campbell's). When something is the best in its field, it is “the Cadillac” of that field. Michael Dell's reputation is associated with the branded label on each and every computer sold through the company. Every personal computer sold by his company is referred to as “a Dell,” rather than a computer (“Dude, you’re gettin’ a Dell”). In this case, the CEO's reputation and brand recognition spills over directly to the products.
As mentioned earlier, Walt Disney's reputation has provided the foundation of a deep brand associated with a former CEO. Disney is now involved in a variety of industries from resort and hotel management, consumer retail, to TV broadcasting, to theme parks, to cruises, to movies. This deep brand associated with the founding CEO, Walt Disney, is now known world wide across many industries and continues to guide the strategy of the firm. The firm hand of Walt Disney is visible in all of the products associated with Disney.
The pervasive influence of mass media in shaping our worldview is well documented. Media have a large impact upon what topics we discuss, provide different views on those topics, both reinforce and change beliefs, and generally shape the nature of our social reality. Although one news outlet (Fox News) touts a “fair and balanced” approach to the reporting of events, the stories we see are dependent upon choices made by editors, producers and readers or viewers. Our need to attribute the locus of causality of success or failure, combined with a finite amount of time and resources to spend on a particular story, tend to focus the cause of a business story (i.e., news story) on the CEO as opposed to external forces. News organizations are under great pressure to produce an interesting, yet simple to understand piece. This pressure often leads to shortcuts in reporting. CEOs are often personally identified as the causal agent of specific organizational outcomes by the media.
It would be disingenuous for us to assume that only one CEO has the reputation to perform a certain task. There is, though, an expectation of success with certain CEOs because of their reputations. This expectation may be based on a favorable evaluation of the past experience of the potential CEO. For example, Ben and Jerry's Ice Cream hired Bob Holland as CEO because of his reputation as an effective international growth strategist, even though he had no experience in the ice cream industry or even the food industry sector in general. It appears odd that an organization would hire someone to lead a food company with no experience in the food industry. Holland's previous experience was his 13 years as a consulting partner at McKinsey and Company, where he managed projects for global concerns involving operational, strategic, and marketing issues. He had also served as CEO of two additional international firms and had his own consulting firm that specialized in global strategic issues. Ben and Jerry's Ice Cream benefited from the association with Holland's reputation as an expert in global strategic issues, as it fit in with their professed need to expand the Ben and Jerry's brand internationally. Holland, however, remained in the CEO spot for less than two years and was unable to successfully penetrate international markets. The success signaled by the reputation was not accomplished during that short time period, and Holland was asked to move on.
Several other examples of a new CEO's reputation driving CEO selection can be found in the late 1990s, when dot.com firms were increasing exponentially during the information technology boom-let. Many of these firms made it their mission to hire professional, Ivy-league university-trained managers to lend credibility and legitimacy to new business ideas. Many of these managers had experience in traditional functional area roles in traditional industries. Meg Whitman, CEO of eBay Inc., was such a manager. The founders of eBay hired Whitman to bring legitimacy to their new business model. Her Harvard MBA, her acumen for successful marketing at Hasbro toys, Florists Transworld Delivery and Stride Rite, had gained her a reputation as a level-headed, savvy, successful performer. However, she had no known association with the technology industry, scant experience in emerging technologies, and no previous success with complicated dot.com business models.
Just as Al Dunlap's reputation as a turnaround specialist was valuable to Sunbeam, Bob Holland's and Meg Whitman's corporate reputations were valuable to the organizations they were hired to run, even though they had no previous experience in the primary industry, nor did they possess any tangible assets important to the development of the hiring organization. In each of these cases, these individuals brought with them a desirable set of skills that were evident in their previously developed corporate reputations. These reputations were directly publicized by the hiring organizations through press-releases to the media and indirectly through the corporations own Web site and materials prepared to introduce the new CEO to both shareholders and customers. The media, in turn, promoted and perpetuated the past successes of these CEOs on their respective organizations. As publicity surrounding a CEO and his or her past successes increases, there is a congruent increase in both the individual celebrity of the CEO and the corporate reputation of the organization.
The nature of celebrity has been reviewed in numerous academic sources. Celebrity most often refers to social actors that attract large-scale public attention and elicit positive emotional responses from the public. Individuals who achieve this level of public attention must cope with the need of the public to gossip, make sense of celebrity, and develop attachment with the qualities of celebrities. Celebrity cannot just be granted to an individual. It is a byproduct of the relationship an individual has with the public, rather than a defining characteristic of an individual.
Marketing researchers characterize celebrity as an outcome of the interaction between entertainment and notoriety, which has been used to merchandise highly visible products called celebrities. Celebrity can be purposefully created through the mass communication of carefully selected, prearranged and oftentimes manipulated information about an individual's personal idiosyncrasies, skills, successes, and style. This serves to create a persona that may result in triggering a positive emotional response in audiences.
Two perspectives of celebrity have been developed to explain the phenomenon of celebrity. The first perspective is that fame is deserved by those who possess it as it has been earned based on past achievement and the quality of past performance and the amount of talent one possesses. The second view is that celebrity is a media-based phenomenon – as the media focuses attention on the worthy and the unworthy alike, churning out many admired commodities, called celebrities, famous because they have been smiled upon by the media. Look at the celebrity of Paris Hilton. She is a celebrity who poses whenever possible, signs autographs and provides photo opportunities to others. She is omnipresent on television programs like Access Hollywood and on channels like E! and VH1. It is difficult to recall the past successes of Paris Hilton. She has not had many starring roles, nor can one identify a particular area of expertise she possesses. Rather, she is a celebrity because she is well-known for being well-known.
Regardless of the route through which an individual is granted celebrity status, because it is based in relationships with others, celebrity increases a CEO's ability to access resources (human capital, capital markets, raw materials) and exploit opportunities that may increase a firm's competitive advantage. As such, CEO celebrity can be considered an intangible asset of the firm. CEO celebrity may increases economic opportunities available to the firm because of positive perceptions of the CEO, emotional responses to the reputation of the CEO, and a high level of attention to the organization because of the CEO. As a result, firms may attempt to contribute to the making of reputations for celebrity CEOs by taking nonconforming actions and proactively seeking to manage impressions. Mostly though, celebrity arises as the media search for firms that serve as vivid examples of important changes in industries and our society in general. Meg Whitman is a celebrity CEO due to her competence, but also due to the fact that she is in an emerging industry that has merited close media attention. eBay is a market leader; seldom does much time pass before the media latches on to eBay for an illustration of societal change. Recently, a seller in an eBay auction sold his soul to the highest bidder. This was used as a springboard to discuss religion and its evolution in our society.
In explaining the performance of an organization as if it is concentrated on a sole individual (i.e., the CEO), the media has a tendency to proliferate the idea that CEOs should be viewed as celebrities. Whether or not these CEOs do, in fact, have the romanticized power granted them by the media has been a topic of continuing debate. However, what generally is accepted is that being seen as having control over a large and powerful organization, such as a Fortune 500 company, carries with it benefits and costs for both the individual and the organization.
In recent times, companies have started “handling” the time their CEO has with the press. In order to be effective, in often turbulent and political organizational environments, we need to ensure that our top managers have the right characteristics: (1) Are they able to engage in the appropriate behavior in different situations? (2) Do they have the ability to correctly read, conform to, and react appropriately in social situations? (3) Can they control their emotions and express their emotion so as to convey the proper individual and organizational image?
We would suggest that it is this style that differentiates truly effective managers from those less effective managers, and it certainly is a key component to the development of the images and impressions top managers convey when interacting with the media. Nearly two decades ago, it was suggested that there was a new form of training for managers and executives that involved enrolling in acting classes so they could effectively present themselves and emote. Presumably now, with many companies utilizing this drama-based form of training to instruct and train their top managers, this early interest has turned into a successful industry for handlers of CEOs.
The dot-com bust, in conjunction with the travails stemming from problems experienced by the likes of Enron Corp. and WorldCom Inc., has resulted in an important outcome. Industry executives have realized that the relationship they have with the media can be symbiotic, they can make demands upon the media in order to better manage their reputations. Such a relationship can be seen with executives such as Bill Esrey of Sprint (now Sprint Nextel Corp.). In 1992, when the telecommunication market was experiencing difficulties, Sprint capitalized on the fact that they had a CEO who had been in place for 17 years. They hoped that such long tenure would convey the impression of competence, stability, and integrity. They focused a two-part media campaign on this one aspect of their CEO, not letting the press talk to him unless they allowed for at least 20 minutes of time, some of which was controlled by the CEO. Sprint felt that short sound bites were counterproductive to the stable image they wanted to portray, so they refused to allow their CEO to speak to the press unless it was under Sprint's terms. They engineered the situation for their own ends, with the intention of reaping positive benefit from the reputation of Bill Esrey.
Other companies, it seems, will allow their CEOs only to interact with the media during high-profile time, avoiding the possibility of diminishing their reputations by reining their leaders in at other times. When Hewlett-Packard (H-P) was in a proxy fight, Carly Fiorina was made available for opportunities to discuss issues with the media. Once HP prevailed on the proxy issue, they made her considerably less available for media opportunities.
In the past few years, there has been an exponential increase in the utilization of the Internet as an option for the gathering of information and news. CNN.com reports that they are hit by over 22 million unique users per month. The increasing amount of surfing on the Internet has resulted in the realization that information can be both disseminated and gathered, using the Internet as a conduit.
Recently there have been reports that employers view Web sites such as facebook.com and myspace.com as part of the screening process for hiring individuals. Companies also are involved not only in collecting information from ostensibly personal sites, but also in providing information through such “back channels” as corporate Web sites, letters to shareholders and annual reports. One prominent back channel is Hoovers.com. Hoovers covers historical, competitive and financial information for thousands of organizations. The site recently added a component called “CEOs on Camera” to include short video and sound clips of various corporate executives, further personalizing the firm and associating it directly with the image of the CEO. This type of communication channel has several advantages. It is not only an inexpensive form of marketing, but it can be useful in the development of the desired corporate reputation. Much like a press release, the CEO does not need to be the individual at the keyboard to post information on line; however the CEO benefits personally from the celebrity that arises from both the direct and the back-door media attention.
Although hiring a “star” CEO does not yield an immediate increase in the profitability of an organization (i.e., according to comparisons one year after hire), being a celebrity CEO does, on average, offer better compensation. Results that have been recently published in Financial World (which runs a CEO of the year contest) outline the myriad changes in a CEO's professional life when she or he enters the ranks of celebrity CEO.
Regardless of performance, once CEOs reach “celebrity” status, it is the norm for them to command significantly higher compensation packages than their peers. Along with an increase in compensation comes a commensurate increase in power and autonomy. This suggests that stockholders and board members expect a significant positive return on their investment. Furthermore, a portion of this increase in compensation often takes the form of stock options tied directly to company performance. We believe that there is, in addition, an expectation that celebrity CEOs have increased mobility across organizations.
Celebrity status for CEOs also brings with it increased latitude, and has been shown to increase the amount of permissible managerial discretion to deviate from normally expected rules of conduct. In other words, we give celebrity CEOs more slack and more latitude in behavior because of who they are. Such increased freedom and diminished scrutiny can frequently result in these CEOs having more power and being held less accountable for both their behavior and organizational outcomes. The increased power and autonomy permits these CEOs to not only make the changes they feel are necessary, but also allows them to increase their reputations by fulfilling market demands (i.e., expectations regarding their actions). These market demands are expectations that both the organization and the public have regarding the reputation of the CEO. They are a part of the individual's reputation in that they are what makes the CEO stand out as a celebrity.
Steve Jobs at Apple Computer Inc. may epitomize the CEO who has increased discretion due to personal characteristics, past experience and media coverage, all of which have contributed to his rather stout reputation and international celebrity. Jobs has built a high-profile reputation as an avid proponent of the development and use of quality technology in creative venues. His reputation is built on cycles of innovation and market success, first with Apple Computer and the personal computer, then with Next technologies, Pixar, and most recently the exceptional success of iTunes and iPods. Now his association with Pixar extends to the Disney Corporation in such a way as to have a broad impact on animated movies and digital media into the future.
Jobs has a quirky reputation as an unrelenting, untiring force for innovation and aesthetic quality in technology. This reputation was vital to Apple when Jobs was hired back in the late 1990s as CEO. Apple was struggling and teetering on the brink of becoming irrelevant when Jobs was brought back and promoted in the media as the “savior” of this organization. Now, Jobs’ reputation is integral to the reputation Apple Computer has as a leading innovator in digital music and multi-media. Despite the corporate turnaround at Apple, the firm was recently named as the firm with the “worst board,” indicating that Jobs’ accountability is limited and his latitude for action is quite broad. For example, research and development (R&D) investment at Apple computer is several times higher than the industry average. Jobs’ personal reputation allows this emphasis on innovation to be acceptable, despite the potential of negative outcomes associated with this emphasis, in the long run.
Whereas the long-term organizational benefits of acquiring celebrity CEOs have yet to be analyzed, normally there is a short-term increase in the stock price of the company. On July 19, 1996, the day Al Dunlap was named chairman and CEO of Sunbeam, the stock jumped 49 percent. There was no change in earnings, nor any increase in market penetration of Sunbeam products to merit this increase. This increase in stock price added over $500 million dollars to the market value of Sunbeam. Dunlap's reputation was solely responsible for this increase in market value.
An additional benefit for organizations is the ability to adopt the image of their new CEO. This sudden change gives the organization and general public a tangible sign that the company is moving in a different direction, one that is related to that of the CEO's reputation. The rehiring of Steve Jobs by Apple was interpreted by the market that Apple would once again be a player in the information technology industry.
Furthermore, the reputation of the new CEO can give employees both fresh direction and increased morale. We believe that employees are always looking for signals/cues to direct their performance. People perform to the level of expectation that is set for them. They then use this signal/cue to direct their future efforts for the company. CEO reputation serves as a symbol around which employees can rally. Jobs’ reputation for relentlessly pushing innovation rallied the troops at Apple during a time the firm seemed on the brink of losing its edge in technology. Lee Iacocca's reputation rallied the employees at Chrysler and helped pull the company out of the depths of poor performance, changing lackluster designs into leading edge automobile innovations.
Boards of directors sometimes determine (through insight or necessity) the need for their organization to update its image in the marketplace. A changed, new image can be obtained for an organization by the recruitment of a CEO with a strong, well known reputation. Burger King Corp. hired Greg Brenneman, a turnaround specialist, as CEO in 2004. He was hired to initiate a new direction for the hamburger restaurant, which had recently experienced the bankruptcy of three of its top ten franchisees. Brenneman was successful, as Burger King ponders what would be the largest initial public offering (IPO).
However, if company performance does not improve after the appointment of a new high-profile CEO, the CEO is personally susceptible to public backlash from the media. With celebrity status comes celebrity expectations. Celebrity CEOs are more closely scrutinized than their less celebrated colleagues. Thus, the CEO can serve as a rallying point that facilitates success, but, in the absence of success, can be the scapegoat for failure.
A new CEO may become a scapegoat for poor organizational performance. Incoming CEOs with strong reputations are expected to perform better and yield higher organizational performance. A strong CEO reputation suggests that the presence of this specific CEO can make a significant difference in the direction of the company. This phenomenon can occur even in firms in which managerial discretion is low, or latitude of action is limited. Whether or not the CEO has power and discretion is not germane to the situation, as long as the public perceives the CEO as both powerful and capable of impacting performance. If performance does not increase after a newly appointed CEO with a strong reputation is installed, an organization and stakeholders may lose confidence in the CEO. Al Dunlap has cast a long shadow. We all remember his celebrated entry as Sunbeam CEO, and we seem to forget his not so celebrated exit.
To further insure that a celebrity CEO focuses on achieving higher organizational performance, CEO compensation is often directly tied to company performance. Although an immediate bump in stock price normally occurs with the announcement of a new celebrity CEO, there is as of yet no empirical research suggesting that celebrity CEO firms outperform the firms of their lower paid counterparts in the long run. Whereas anecdotal evidence suggests that the “purchase” of a celebrity CEO may positively affect the company, it typically does so only in an immediate way, and is not associated with any evidence of long-term performance improvement. This calls into question the value-added nature of CEO reputation as an intangible asset that contributes to the long-term success of the firm.
Leaders may have to perform many in-role behaviors – so much so that their behavior as CEO may be constrained by the need to perform them. Some CEOs may be restricted by their celebrity reputation. Like “brands,” reputation is based on expectations. If CEOs do not follow the expected path of their reputations, then the reputations may be diminished. This may restrict the actions of CEOs, in that they may be more concerned with maintaining their reputations than with implementing change in an organization. This restriction of actions can lead to organizational inertia and resistance to change when it is necessary.
Paradoxically, at the same time a CEO experiences a desire to restrict actions to be consistent with previous actions, celebrity CEOs have increased access to organizational resources from a variety of stakeholders. As the celebrity of a CEO increases, stakeholders tend to provide more resources to the CEO without question. These resources, while valuable for the firm, may be misdirected by a CEO whose personal reputation must be maintained, and whose personal compensation is at stake.
Celebrity CEOs also are given increased compensation over other similarly situated CEOs. When a board of directors makes the decision to hire a star CEO, they not only have to justify the expense, but also are now being watched more closely by the media. This increased scrutiny and exposure may have the public, as well as the stockholders, second-guessing not only the decision to hire the celebrity CEO, but also his or her actions. The accountability of the board is intensified, and they are placed in the position of justifying the hiring action, while at the same time relinquishing power to the new CEO in the form of increased autonomy. For that reason, celebrity CEOs and their boards of directors are susceptible to exaggeration, delusion, and manipulation of information provided to the public and the media. This increased scrutiny further intensifies a celebrity CEO's need to make decisions consistent with those that built his or her reputation in the first place. Ironically, just as the autonomy of a celebrity CEO increases, maintaining his or her reputation restricts the latitude of decisions and actions she or he can take.
As CEO reputation increases, we tend to grant them more discretion and freedom to deviate from norms of behavior, because of how important we perceive them to be, and perhaps also the trust we place in them that they will channel their own behavior only in organizationally appropriate directions. The latitude to deviate from expected norms of behavior, coupled with the need to maintain their reputation, may influence CEOs to use their added freedom and discretion in self-interested ways, which might play out in the types of ethics and legal breaches we have witnessed in the corporate scandals at companies like Enron, WorldCom, and Tyco International in recent years.
The concept of “celebrity” is a fascinating one, and clearly a topic of great interest in our celebrity-obsessed culture. Recently, the concept of celebrity has been extended to organizations and to the CEOs who run high-profile companies. Celebrity is created through mass communication and the media's strategically orchestrated efforts to manage impressions of organizations for an adoring public. In the flattened world outlined by Friedman, CEO reputation may be one factor that results in some degree of competitive advantage. Importantly, celebrity CEOs come with considerable upside – accompanied by significant downside – risk. Reputation can add value and increase the opportunities for organizations to gain competitive advantage in the flattened competitive landscape of the future. But, as we have tried to demonstrate, there is a significant downside to the strategy of hiring a celebrity CEO.
We believe that the concept of celebrity CEO is a great place in which to explore the interface of management and marketing disciplines. We discussed in this article how CEOs’ “larger-than-life” reputations can be an intangible resource with some benefits for organizations, but some liabilities for both CEOs and their organizations as well. We suggest that these benefits and liabilities may impact an organization's competitive advantage or disadvantage in the flattened world.
There has been a dearth of research on the influence of reputation on organizational performance. There is a temptation to dismiss this area and just state that reputation has a positive influence on organizational performance. A recent article reviews the nature of celebrity: V. P. Rindova, T. G. Pollock, and M. L. A. Hayward, “Celebrity Firms: The Social Construction of Market Popularity,” Academy of Management Review, 2006, 31, 50–71, and outlines a number of the possibilities for this relationship.
A recent book by Gamston (J. Gamston, Claims to Fame: Celebrity in Contemporary America, Berkeley, CA: University of California Press, 2004) outlines the existing perspectives on celebrity. Interestingly, he presents the example of Angelyne, a celebrity who poses, signs autographs and provides photo opportunities to passersby. Angelyne, by her own accord, has no talent and no past success. Rather, she is a celebrity because she is well known for being well known. Attaining celebrity is, we believe, considerably more difficult than this for most, but we must admit that celebrity for some is no more than this.
Celebrity status for CEOs also brings with it increased latitude and has been shown to increase managerial discretion to deviate from normally expected rules of conduct; in other words, we give these folks more slack because of who they are. See G. R. Ferris, R. Blass, C. Douglas, R. W. Kolodinsky, and D. C. Treadway, “Personal Reputation in Organizations,” in J. Greenberg (Ed.), Organizational Behavior: The State of the Science, 2nd ed. (Mahwah, NJ: Lawrence Erlbaum, 2003), 211–246.
An interesting article by A. Ranft, and H. O’Neill, “Board Composition and High-Flying Firms: Hints of Trouble to Come?” in Academy of Management Executive, 2001, 15, 126–138, makes the point that celebrity CEOs may have more power and are held less accountable for both their behavior and organizational outcomes.
We have a tendency to romanticize both the behaviors and the success of leaders in organizations. See J. R. Meindl, S. B. Ehrlich, and J. M. Dukerich, “The Romance of Leadership,” Administrative Science Quarterly, 1985, 30, 78–102. This paper outlines how we oftentimes have difficulty objectively evaluating the performance of leaders.
Executive Summary
An interesting and relatively recent phenomenon is the widely known and public profile of the chief executive officers (CEOs) of prominent organizations. Three decades ago, the average American would have little knowledge of even the name of the CEO of omnipresent companies like General Motors Corp., General Electric Co., or Sears Roebuck & Co. Now, we grant CEOs of these companies celebrity status, putting their pictures on the covers of major news- and fluff-magazines, reading about them in the high-society, entertainment columns in major newspapers, and attributing to them “rock-star” fame. The issue of CEO reputation, with its costs and benefits for organizations, has become a pivotal one for these high-profile organizations. In this article, we discuss the media/marketing machinery involved in promoting CEO reputation, and how these lofty reputations can result in both major benefits and hefty costs for organizations.
Annette L. Ranft is an assistant professor of management in the College of Business at Florida State University. She received a Ph.D. in management from the University of North Carolina at Chapel Hill. Her research interests are in the areas of merger and acquisition integration, strategic leadership and corporate governance. She is the author of articles published in such journals as the Academy of Management Executive, Organization Science, Journal of Management, Journal of International Business Studies and the Journal of Business Research. (E-mail: aranft@cob.fsu.edu).
Robert Zinko is a Ph.D. candidate in management in the College of Business at Florida State University. He received a B.A. degree in English from Appalachian State University and an M.B.A. from the University of North Carolina at Greensboro. His research interests primarily are in the area of reputation in organizations, and his research has been published in The Leadership Quarterly, Human Resource Management Review, and the Journal of Occupational Health Psychology.
Gerald R. Ferris is the Francis Eppes Professor of Management and a professor of psychology at Florida State University. He received a Ph.D. in business administration from the University of Illinois at Urbana-Champaign. Ferris has research interests in the areas of social influence and effectiveness processes in organizations, and the role of reputation in organizations, and he is the author of articles published in such journals as the Journal of Applied Psychology, Organizational Behavior and Human Decision Processes, Organizational Dynamics, Personnel Psychology, Academy of Management Journal, Academy of Management Executive, and Academy of Management Review.
M. Ronald Buckley is the J.C. Penney Company Business Leadership Chair, a professor of management and a professor of psychology in the Michael F. Price College of Business at the University of Oklahoma. He received his Ph.D. in industrial/organizational psychology from Auburn University. His research interest is in traditional human resources management issues ranging from performance evaluation to the selection interview, and he is the author of articles published in Journal of Applied Psychology, Organizational Behavior and Human Decision Processes, Organizational Dynamics, Journal of Management and Academy of Management Review.
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Organizational Dynamics
Volume 35, Issue 3, 2006, Pages 279-290 |
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CEO reputation and stock
The CEO and the external environment
